Health Spending Accounts
Are you paying for your healthcare with after-tax dollars?
Explore a tax-deductible way to fund your medical and dental expenses through your business and receive them tax-free.
Canadian public healthcare covers many catastrophic expenses but leaves gaps that even costly private insurance won't fill.
A Health Spending Account (HSA) offers a tax-effective way to pay for most routine medical expenses without the ongoing costs and annoying restrictions of conventional insurance.
Your business pays for the claims and administration — all tax-deductible. You and your family receive the benefits — all tax-free. Ditto for your employees.
An HSA (sometimes called a Private Health Services Plan or PHSP) often has additional advantages:
- no medical tests to qualify
- no ongoing charges (just an administration charge when you have a claim)
Unlike conventional medical insurance, your health doesn't affect your coverage.
How does an HSA work?
After reviewing different HSA Administrators, we selected CustomCare.
The process is simple and quick:
- You: pay for the eligible product or service (e.g., $1,000) and submit your receipt to your employer.
- Employer: submit the receipt to CustomCare along with a tax-deductible payment for:
- the amount of the claim (e.g., $1,000)
- an administration charge of 10% of the claim amount (e.g., $100)
- HST (e.g., $13)
- You: Receive a non-taxable reimbursement directly in your bank account from the HSA Administrator without any deductions, deductibles or cost sharing (e.g., $1,000)
Who qualifies for an HSA?
You generally qualify if you are:
- an incorporated professional (e.g., accountant, doctor, lawyer)
- the owner of a small business (a Canadian-Controlled Private Corporation (CCPC)
- a sole proprietor with arm's length employees
Conventional Insurance vs an HSA
What is covered?
Reminder: Products change. Simplified for clarity. Refer to the contract for details.
An HSA covers the same expenses as the Medical Expense Tax Credit when required by an authorized medical practitioner. The details get complicated and there is some interpretation. You may only claim up to 10% to 15% of your active business income. That's where the HSA Administrator helps.
There is ambiguity about exclusions, which is why the choice of HSA Administrator matters.
What's the cost?
You pay a one-time setup fee of $295 plus HST (which is deductible). When you submit a claim, there's an administration charge of 10% plus HST.
Unlike some plans, there are no ongoing fees.
The big risks
A Health Spending Account works well for routine medical expenses. What about major medical expenses? Conventional medical and dental insurance generally protects you against surprises (subject to exclusions, deductibles, co-payments and caps).
For better protection, add insurance to your HSA.
Travel medical insurance add-on
No exclusions for pre-existing chronic medical conditions.
When outside Canada, a medical emergency could be very expensive. The federal government says: "If you plan to go abroad, even on a day trip to the United States, you should purchase the best travel insurance you can afford before you leave Canada."
OHIP provides limited coverage outside of Ontario. If you are planning to travel outside Ontario for business or a vacation, the Ontario Ministry of Health and Long Term care says: "If you plan to travel outside of Ontario, it is strongly recommended that you obtain additional private medical insurance and fully understand what your policy covers. "
Add travel insurance
With Travel insurance (which is bundled with Major Medical insurance), you get
- high limits: $1,000,000 per person per claim
- coverage for pre-existing medical conditions: no
- full payment: no deductibles
- medical expenses guaranteed or advanced to the service provider
- Unlimited trips: up to 60 days each time
- Worldwide coverage: once you leave your province of residence
- referrals to doctors, pharmacists and hospitals
- transportation home or to another medical facility
Major Medical insurance add-on
Provincial healthcare leaves gaps which can be costly.
What happens if your medical expenses are much higher than you anticipated? Conventional insurance generally protects you (subject to deductibles, co-payments and caps). An HSA doesn't unless you add Major Medical insurance (which is bundled with Travel insurance).
The annual maximum benefit is $125,000 per person, per injury/illness for
- hospital charges
- prescription drugs
- nursing services
- ambulance services
- qualifying services from licensed practitioners
The annual deductible is $2,500 per person.
Travel & Major Medical Insurance are combined (and highly recommended).
The prices as of January 1, 2019 are
- under 50: $21.95 single, $32.95 family
- age 50+: $26.95 single, $39.95 family